When will they start withdrawing dollars. US Federal Reserve starts withdrawing dollars
The US Federal Reserve begins a new round of tightening monetary policy.
At a meeting on Wednesday, the Committee on open markets Fed left unchanged key rate in the range of 1-1.25% per annum, and also announced the launch of a program to withdraw dollar liquidity from financial system.
From October, the US central bank will begin to reduce its balance sheet, getting rid of the debt securities of the US government and mortgage agencies, bought between 2008 and 2014.
In fact, this is the beginning of the process of “reverse quantitative easing,” says Ability Capital analyst Mikhail Fedorov: in the 6 years after the 2008 crisis, the Fed issued $3.5 trillion, this money was used to buy assets from American banks, flooding the financial system with free cash resources.
Excessive money supply poured into the markets, causing their rapid growth: stock indices in the US and Europe soared 3-4 times; the cost of borrowing for companies and governments fell to historical lows; record capital inflows have warmed up developing countries. "Even our market got a pretty penny," Alexei Surov, a senior trader in Zenit Bank shares, jokes.
Now this process will reverse, explains Fedorov. While the Fed is reinvesting funds from assets on the balance sheet - as soon as the bonds mature, the regulator buys the same papers for the same amount. But starting from October, this practice will be abandoned: the Fed will begin to redeem Treasury bonds for $ 6 billion a month, mortgage bonds - for $ 4 billion.
In a quarter, the volume of the program will increase to $12 billion and $8 billion, respectively, and in another year it will reach $50 billion in total.
The result will be a "reduction in the reserves available to banks," the Fed states: the money supply will go back to the Central Bank and, in fact, be "burned." Until the end of 2018, the volume of withdrawals will amount to $500 billion.
The Fed opens a "Pandora's box" - the consequences of the policy of destruction money supply it's impossible to predict at the moment, warns Pacific Investment Management's global strategic adviser Richard Clarida.
"Printing presses" still continue to work in Europe and Japan: the ECB is buying up assets worth 60 billion euros a month, the Japanese central bank - 80 trillion yen a year.
The problem, however, is that it is dollars that the world economy needs, explains VTB Capital strategist Neil McKinnon: during the soft policy in the United States, while interest rates on loans were extremely low, a colossal amount of dollar debts (about $ 13 trillion, another 14 trillion - "hidden debt" in the form of obligations of companies on swap operations.All this debt must be returned and serviced in US currency.
Russian companies, for example, in 2008-14, before the imposition of sanctions, they managed to borrow $252 billion abroad, according to the Central Bank, and the total external debt RF reaches 520 billion dollars.
“The problem of lack of funding could become so acute that it will provoke a sharp surge in volatility on money market, worsening risk appetite and shrinking global liquidity. In extreme cases, this state of affairs can provoke a systemic financial crisis and a global recession," McKinnon warns.
First of all, developing markets will suffer from the "dollar vacuum cleaner" - every dollar seized by the Fed reduces capital inflows to developing countries by 10 cents, the Institute's study published in August showed. international finance(IIF).
JP Morgan predicts that the Fed could reduce its balance sheet by $2.2 trillion over three years, which, based on the IIF model, will lead to an outflow of capital from the EM markets by $220 billion.
result new policy The Fed will increase the dollar on world markets, warns VTB24 analyst Alexei Mikheev. According to his forecast, the euro will collapse to 1.10 per dollar in November, and by February-March it will be below parity.
Simultaneously, "with a general curtailment of risk appetite, the ruble will start to fall heavily," Mikheev says. By the end of the year, the dollar may rise to 67 rubles.
The US Federal Reserve is embarking on a new phase of monetary tightening.
At a meeting on Wednesday, the Federal Open Market Committee left the key rate unchanged in the range of 1-1.25% per annum, and also announced the start of a program to withdraw dollar liquidity from the financial system.
From October, the US central bank will begin to reduce its balance sheet, getting rid of the debt securities of the US government and mortgage agencies, bought between 2008 and 2014.
In fact, this is the beginning of the process of “reverse quantitative easing,” says Ability Capital analyst Mikhail Fedorov: in the 6 years after the 2008 crisis, the Fed issued $3.5 trillion, this money was used to buy assets from American banks, flooding the financial system with free cash resources.
Excessive money supply poured into the markets, causing their rapid growth: stock indices in the US and Europe soared 3-4 times; the cost of borrowing for companies and governments has fallen to historic lows; record inflows of capital warmed up developing countries. "Even our market got a pretty penny," Alexei Surov, a senior trader in Zenit Bank shares, jokes.
Now this process will reverse, explains Fedorov. While the Fed is reinvesting funds from assets on the balance sheet - as soon as the bonds mature, the regulator buys the same papers for the same amount. But starting from October, this practice will be abandoned: the Fed will begin to redeem Treasury bonds for $ 6 billion a month, mortgage bonds - for $ 4 billion.
In a quarter, the volume of the program will increase to $12 billion and $8 billion, respectively, and in another year it will reach $50 billion in total.
The result will be a "reduction in the reserves available to banks," the Fed states: the money supply will go back to the Central Bank and, in fact, be "burned." Until the end of 2018, the volume of withdrawals will amount to $500 billion.
The Fed is opening a "Pandora's box" - the consequences of the policy of destroying the money supply are impossible to predict at the moment, warns global strategic adviser to Pacific Investment Management Richard Clarida.
"Printing presses" still continue to work in Europe and Japan: the ECB is buying up assets worth 60 billion euros a month, the Japanese central bank - 80 trillion yen a year.
The problem, however, is that it is dollars that the world economy needs, explains VTB Capital strategist Neil McKinnon: during the soft policy in the United States, while interest rates on loans were extremely low, a colossal amount of dollar debts (about $ 13 trillion, another 14 trillion - "hidden debt" in the form of obligations of companies on swap operations.All this debt must be returned and serviced in US currency.
Russian companies, for example, in 2008-14, before the imposition of sanctions, managed to borrow $252 billion abroad, according to the Central Bank, and the total external debt of the Russian Federation reaches $520 billion.
“The problem of lack of funding can become so acute that it provokes a sharp surge in volatility in the money market, worsening risk appetite and reducing the level of global liquidity. In the extreme case, this state of affairs can provoke a systemic financial crisis and a global recession,” McKinnon warns.
First of all, emerging markets will suffer from the "dollar vacuum cleaner" - every dollar seized by the Fed reduces capital inflows to developing countries by 10 cents, a study published in August by the Institute of International Finance (IIF) showed.
JP Morgan predicts that the Fed could reduce its balance sheet by $2.2 trillion over three years, which, based on the IIF model, will lead to an outflow of capital from the EM markets by $220 billion.
The result of the new policy of the Fed will be the growth of the dollar on world markets, warns VTB24 analyst Alexei Mikheev. According to his forecast, the euro will collapse to 1.10 per dollar in November, and by February-March it will be below parity.
Simultaneously, "with a general curtailment of risk appetite, the ruble will start to fall heavily," Mikheev says. By the end of the year, the dollar may rise to 67 rubles.
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13:18 — REGNUM It’s probably too early to talk about the historic transition to a strong dollar policy — as well as about total growth American currency on all fronts. The Fed is acting very slowly, deliberately dragging out the entire process to avoid strong effects, told a correspondent. IA REGNUM Chief Analyst at TeleTrade Group Pyotr Pushkarev.
Years pass from the first mention of their plans to their implementation. During this time, the market manages to comprehend and digest a lot, if not everything, in advance, so most events have long been in prices - including, for the most part, the story of the so-called "unloading the Fed's balance sheet" or the operation to "withdraw excess money supply, as it is often called.
“Let's evaluate the scale of this program in comparison. The US Treasury monthly, in the usual, regular mode, places government bonds in the amount of at least $50 billion - these are 5-year, 10-year, 30-year bonds. And, for example, in the fourth quarter of 2017, it planned a record placement since 2009 in the amount of $501 billion, of which more than $250 billion falls on one month: November. Against this backdrop, the Fed's broadcast program of partial "offloading the Fed's balance sheets" — $30 billion by the end of 2017, including just $18 billion in Treasury bonds and $12 billion in mortgage paper — is just a drop in the bucket. Over the entire next year, even if the Fed strictly adheres to the announced plans, they will absorb only $420 billion from the financial system: only $150 billion of them in the 1st half of the year, and on average the annual rate is $35 billion per month. And even after that, at least $4 trillion of the current $4.5 trillion will remain on the Fed’s balance sheet.” the expert explained.
For the first time, as an event that will ever happen, the Fed’s Open Market Committee spoke about “unloading the balance sheet” back in 2016. This summer, back in June, they published on their website a memorandum with all the figures for monthly transactions for the sale of securities from the balance sheet, preparing the markets in advance for how fast all this will happen and how. At the end of July and August, it was reported that this program would be launched "soon." All this news did not prevent the dollar from weakening either in July, or in August or September. The euro, for example, has broken a 3-year high above 1.20 against the dollar during this time, as the European Central Bank is also on the alert and plans to start winding down its cheap and affordable money program next year. Just the other day, the British pound rewrote its annual maximum, and even earlier - the Canadian dollar ... All this time, the markets were already well aware of the beginning of unloading the balance, but this did not bother anyone, Pushkarev noted.
Now the Fed has only indicated the timing of the start of the withdrawal of the money supply - October. This happened perhaps a couple of months earlier than the markets expected. That is why some currencies, for example, are initially weak due to the policy own bank Japanese yen, may also sink by a few percent. Or, highly overheated currencies such as the euro may lose some of their value and correct downwards. But it is unlikely that the market will completely lose its head and forget that there are other central banks that are also tightening policy, and they are acting much faster and more decisively than the Fed.
“This is especially noticeable in contrast: the chairman of the Bank of Canada said that it was time to raise the rate at the end of June - and two weeks later he raised it for the first time, and in September - the second time. The Bank of England has announced the possibility of both raising the rate and incentives to start curtailing at the same time - already within the next few months, and the market is waiting for the first rate hike in England in early November or December, even despite Brexit. Compare: the Fed first talked about the possibility of raising the rate back in the summer of 2013, under Bernank, but in reality they raised the rate by a miserable quarter of a percent in December 2015. They paused for another year - in December 2016 they added another quarter of a percent, in 2017 - another twice a quarter of a percent - and the rate is still very low, at the level of 1% -1.25%”, - the expert gave the figures.
And even now, as the Fed sees another rise before the end of this year, and three more in 2018, Janet Yellen uttered a few phrases that could well be seen as an opportunity to “reverse” later: “…we will consider the resumption of reinvestment in case the situation deteriorates”, “…negative economic shocks may push us to return rates to the zero end of the range”, “…the weakness of inflation in this year is caused by temporary factors that are likely to fade away”… understanding of the factors behind inflation is not perfect”, “…if inflation remains persistently low, the Fed will change its plans for rates.” Against the backdrop of decisive action by other central banks, the Fed's tightening plans do not look all that significant. Investors may well prefer from the basket of major world currencies not the dollar, but the British pound, Canadian or even the euro - it is possible that after some correction, interest in the European currency will flare up with renewed vigor.
In his opinion, the markets are now looking for yields on bonds, currencies, and other instruments. and it will grow faster where they will quickly abandon post-crisis stimulus programs and raise rates. In this regard, nothing seriously threatens the positions of the ruble and investments in Russian securities: the difference in yield is still more than 5% per year in favor of the Russian Ministry of Finance, even after the yield on 10-year US Treasury bonds jumped to 2.3%. Even if it rises gradually to last year's highs of 2.6%, demand for Russian debt securities it didn't bother me then. And most likely, the dollar against the ruble will continue to drift smoothly: within 57-59 rubles - until the end of September, and gradually in the direction of 55-56 rubles per dollar until the end of 2017.
"On the international market the situation is different: there are indeed some prerequisites for a reversal of the trend from a weak dollar to a growing one, or, in any case, the possibility of strong corrections towards a stronger dollar in certain currencies. But it is far from a fact that the market agrees and is quite ready to change its mood so quickly. In any case, the first reaction is ambiguous, ” the expert concluded.
According to IA REGNUM, the US Federal Reserve begins withdrawing dollars. This is new stage tightening of monetary policy. From October, the US Central Bank will begin to reduce its balance sheet, getting rid of the debt securities of the US government and mortgage agencies, bought in the period from 2008 to 2014. Until the end of 2018, the volume of withdrawals will amount to $500 billion.
Withdrawal of dollars will begin in October, the US Federal Reserve has finally decided to start a massive buying of the dollar. Experts are speculating about the consequences. About ten days ago, we suggested that at the upcoming meeting of the US Federal Reserve Open Market Committee, the decision to begin withdrawing a significant part of dollar liquidity from the market would be announced. As expected, the Fed left unchanged interest rate in the range of 1-1.25% per annum, and also ... announced the start of reducing its balance sheet by getting rid of the debt securities of the US government and mortgage agencies, bought out during the quantitative easing program from 2008 to 2014. Translated from the language of financiers into Russian, this means that the Fed, like a giant pump, will begin to pump out of the market the huge amount of dollars pumped into it during the 2008 crisis. Highly reliable debt securities will be offered to US banks in exchange for the dollars they hold. The pump will start operating in October According to the decision of the committee, the operation will start in October. The total amount of dollar liquidity poured into the market from 2008 to 2014 is about $3.5 trillion. By the end of 2018, according to the Fed, the amount of seizures will be $500 billion. According to JP Morgan's forecast, over three years, the volume of balance sheet reduction will amount to 2.2 trillion dollars. Consequences As for the consequences of such a large-scale program to “burn” the dollar mass, no one is able to fully predict them. The only thing that experts agree on is that everyone who is somehow tied to the US dollar and is not an American resident will be affected by the cleanup of the Fed's balance sheets. According to Pacific Investment Manager Global Strategic Advisor Richard Clarida , by its actions, the Fed opens a Pandora's box, the consequences of which are impossible to predict. And yet, some of the most obvious results of the mass withdrawal of the dollar from the market can already be spoken of even now. Consequently, this will lead to an increase in the exchange rate of the American currency in relation not only to the major, but also to almost all currencies of the world. In Russia, the value of the dollar is predicted to rise to the level of 62-67 rubles per dollar. The dollar is the most demanded currency on the planet, almost all enterprises in various countries “work” on it, including even those where its free circulation is prohibited. Thus, it should wait for the inevitable blow to the entire world production, with the corresponding consequences in the form of price increases, plant closures and rising unemployment. Among other things, an expensive dollar is a negative development for the oil market, which is already under pressure due to overproduction. According to forecasts, a Brent barrel may fall to $45 this fall, which, by the way, will lead to a further devaluation of the ruble, which is still dependent on black gold quotes. Oil does not want to be sold for rubles Perhaps, looking at this forecast, someone will hasten to say: so be it - the less the dollar in the Russian economy, the better. And in general, let's sell oil for rubles. With all due respect to such a patriotic impulse, the proposal has no basis and only testifies to the ignorance of its authors of economic laws and modern realities. Such a scheme could only work if there were no other competing suppliers of the same oil on the market. However, there are quite a lot of oil suppliers to the world market, and the ruble is not a freely convertible currency. In order to purchase oil for rubles, a potential buyer will need to buy these same rubles somewhere, which already entails an increase in costs. In such a situation, the buyer asks a simple question: why should I look for these rubles somewhere, and even pay for this is a commission to banks, when it is much easier to buy oil from someone who sells it for world-wide understandable money - dollars.
About ten days ago, we suggested that at the upcoming meeting of the US Fed's Open Market Committee, a decision would be announced to proceed with the withdrawal from the market of a significant part of ...About ten days ago, we suggested that the upcoming meeting of the US Fed's Open Market Committee will announce a decision to begin withdrawing a significant portion of dollar liquidity from the market.
The go-ahead is given
The meeting of the Committee that ended last night (Moscow time) fully confirmed this assumption. As expected, the Fed left the interest rate unchanged in the range of 1-1.25% per annum, and also ... announced the start of reducing its balance sheet by getting rid of the debt securities of the US government and mortgage agencies, bought out during the quantitative easing program from 2008 to year 2014.
Translated from the language of financiers into Russian, this means that the Fed, like a giant pump, will begin to pump out of the market a huge mass of dollars pumped there during the 2008 crisis.
High-quality debt securities will be offered to American banks in exchange for their dollars.
The pump will start working in October
According to the decision of the Committee, the operation will start in October. The total volume of dollar liquidity poured into the market from 2008 to 2014 amounted to about 3.5 trillion dollars. By the end of 2018, according to the Fed, the amount of seizures will be $500 billion. According to JP Morgan's forecast, over three years, the volume of balance sheet reduction will amount to $2.2 trillion.
Effects
As for the consequences of such a large-scale program to “burn” the dollar mass, no one is able to fully predict them. The only thing experts agree on is that everyone who is somehow tied to the US dollar and is not an American resident will be affected by the Fed's balance sheet cleanup.
According to Richard Clarida, global strategic adviser at Pacific Investment Management, the Fed's actions are opening a "Pandora's box", the consequences of which are impossible to predict.
And yet, some of the most obvious results of the mass withdrawal of the dollar from the market can be said even now.
First and foremost, the Fed will create a dollar deficit in the world market by its actions. Consequently, this will lead to an increase in the exchange rate of the American currency in relation not only to the main, but also to almost all currencies of the world.
Even now, experts are quite seriously considering the possibility of depreciating the euro to the level of parity and below. In Russia, an increase in the value of the dollar to the level of 62-67 rubles / $ is predicted.
The dollar is the most demanded currency on the planet; almost all enterprises in various countries “work” on it, including even those where its free circulation is prohibited.
Thus, we should expect an inevitable blow to the entire world production, with the corresponding consequences in the form of rising prices, closing factories and rising unemployment.
Among other things, an expensive dollar is a negative development for the oil market, which is already under pressure due to overproduction. According to forecasts, a Brent barrel may fall to $45 this fall, which, by the way, will lead to a further devaluation of the ruble, which is still dependent on black gold quotes.
Oil does not want to be sold for rubles
Perhaps someone, looking at this forecast, will hasten to say: so be it - the less the dollar is in Russian economy, all the better. And in general, let's sell oil for rubles.
With all due respect to such a patriotic impulse, the proposal has no basis whatsoever and only testifies to the ignorance of its authors of economic laws and modern realities.
Such a scheme could only work if there were no other competing suppliers of the same oil on the market. However, there are quite a lot of oil suppliers to the world market, and the ruble is not a freely convertible currency. A potential buyer, in order to purchase oil for rubles, these same rubles will need to be bought somewhere, and this already entails an increase in costs.
In this situation, the buyer asks a simple question: why should I look for these rubles somewhere, and even pay a commission to banks for this, when it is much easier to buy oil from someone who sells it for world-wide understandable money - the dollar.
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